Author: Kevin Ming YuanPublisher:
ISBN:
Category :
Languages : en
Pages : 0
Book Description
Essays on the Effects of Monetary Policy on Financial Markets
Author: Kevin Ming YuanEssays in Monetary Policy and Financial Markets
Author: Mykyta BilyiBanking, Monetary Policy and the Political Economy of Financial Regulation
Author: Gerald A. EpsteinPublisher: Edward Elgar Publishing
ISBN: 1783472642
Category : Business & Economics
Languages : en
Pages : 391
Book Description
The many forces that led to the economic crisis of 2008 were in fact identified, analyzed and warned against for many years before the crisis by economist Jane D�Arista, among others. Now, writing in the tradition of D�Arista's extensive work, the
Three Essays on Financial Markets and Monetary Policy
Author: Abeba Siraj MussaPublisher:
ISBN:
Category : Economics
Languages : en
Pages : 144
Book Description
The global financial crisis triggered by fallout form the sub-prime mortgage market in the U.S. has led economists to focus attention on the role of monetary policy in the crisis. The question of how monetary policy affects the financial sector is the key to the current debate over the role financial stability should play in the monetary policy decisions. As a contribution to this debate, my dissertation examines the link between monetary policy and three main financial sectors-the banking sector, the stock market, anf the housing market. The first essay examines whether the Federal Open Market Committee (FOMC) responded to changes in equity prices during the period 1966-2009. I distinguish the indirect response, where the FOMC reacts to equity prices only when equity prices affect its target variables, from the direct response, where the FOMC reacts to equity prices directly regardless of their effects on the target variables. In addition, the paper models the Federal Reserve's reaction function as state dependent, hypothesizing that the FOMC may respond to changes in asset prices asymmetrically during different states of the economy. The results show that the FOMC did respond directly to equity price changes when asset prices were falling. During non-bust periods, the FOMC did not respond directly to equity prices. It used information on equity prices to forecast target variables. The second essay investigates the effect of expansionary and contractionary monetary policy on the risk taking behavior of low-capital and high-capital banks. Using quarterly data on federally insured banks spanning the period from 1991 to 2010, the paper shows that expansionary policy caused high capital banks to take more risk. Capital constrained banks were not significantly affected by expansionary monetary policy. Contractionary monetary policy, however, is not effective in affecting the risk-taking behavior of both capital-constrained and unconstrained banks. The paper, therefore, confirms the hypothesis that expansionary policy is more effective in encouraging capital unconstrained banks to invest more in risky assets. The third essay examines the role of monetary policy on housing bubbles in the last three decades. A spatial dynamic model is used to explicity account for spatial cross-section dependence in the data. Using quarterly panel data on 48 contiguous U.S. states and the District of Columbia, the paper discovers that the housing bubbles across the U.S. are mainly driven by the local or state specific factors during the period 1976-2000. However, the prolonged low interest rate since the 2001 recession contributed to the run-up in house prices acrsss states.
Essays on Monetary Policy and Financial Markets
Author: Ermira FarkaThree Essays on Financial Markets and Monetary Policy
Author: Conglin XuEssays in Monetary Policy and Financial Markets
Author: Fatma S. TepePublisher:
ISBN:
Category : Economics
Languages : en
Pages :
Book Description
This dissertation examines the interaction between macroeconomic aggregates and financial markets in two different essays. The expansion of derivatives markets has prompted interest in estimating options-implied measures to analyze market participants’ beliefs about future movements in the prices of these derivatives’ underlying assets and the probability these participants assign to unlikely events (see Datta et al., 2014). In this spirit, analyzing oil market is important for two main reasons. First, among all commodities, crude oil futures and derivatives are the most traded and liquid asset in the whole commodity market. Second, the informational content of oil derivatives can be indicative of shifts in global economic expectations which may be of interests to producers, investors and policy makers. Because the risk neutral density (RND, hereafter) consists of information from various option series that have a wide range of strike prices and maturities, we can conjecture more detailed effects of news announcements on market sentiment by investigating the changes in the RND. Chapter 1 links the crude oil market to macroeconomic risk by studying the RND around the U.S. macroeconomic news announcements. I use a non-parametric method to recover the RND and conduct regression analysis using daily data. The analysis provides several noteworthy results. First, I find that the RND is systematically affected by certain macroeconomic news announcements. Second, after controlling for the content of the news, my results indicate that good news tend to make the distribution less negatively skewed, whereas bad news have an opposite effect. However, I do not find any systematic pattern between the content (bad/good) of the news and the implied volatility or kurtosis. Hence, my results show that better/worse-than-expected news in macroeconomic announcements may both increase and decrease implied volatility and kurtosis of the option implied distribution. Finally my estimates obtained from nonlinear regressions display that the magnitude of the surprise may play into this effect; for example worse-than-expected news in Housing Starts announcement decrease the implied volatility and increase the implied kurtosis only when the size of surprise is not too large. How should a central bank conduct monetary policy in the presence of financial shocks? In Chapter 2, I use different nonlinear policy rules and address this question. Most empirical work on monetary policy relies on simple linear policy rules, however it is not clear whether such a rule can be an adequate representation of a process as complex as that of monetary policy. I first estimate Markov Switching Taylor rules with constant transition probabilities to allow for state-contingent policy making during 1987.3-2008.4. As a proxy for financial stress, I use the Adjusted National Financial Conditions Index constructed by the Chicago Fed. Then, I allow transition probabilities driving the monetary policy stance to vary over time and be a function of economic and financial indicators. The paper provides clear-cut evidence that, during the Greenspan-Bernanke tenure, the U.S. monetary policy can be characterized falling into two distinct regimes; a conventional regime where the Fed puts a greater emphasis on targeting inflation while stabilizing the economic outlook and a distressed regime where the Fed responds aggressively to output gaps and is less concerned with inflation. The distressed regime is closely correlated with times of financial imbalances. The empirical results show that nonlinear models outperform the simple linear specification in terms of model fit and the ability to track the actual interest rate. Also, the economic and financial indicators are found to be informative in dating the evolution of the state of the monetary policy stance. The results have implications for nonlinear rules to be a useful guideline for forecasting and policy analysis.
Macroeconomics, Finance and Money
Author: Giuseppe FontanaPublisher: Springer
ISBN: 0230285589
Category : Business & Economics
Languages : en
Pages : 363
Book Description
This volume focuses on current issues of debate in the area of modern macroeconomics and money, written from (a broadly interpreted) post Keynesian perspective. The papers connect with Philip Arestis' contributions to macroeconomics and money, and pay tribute to his distinguished career.
Essays on Monetary Economics
Author: Wenbin WuPublisher:
ISBN:
Category :
Languages : en
Pages : 93
Book Description
Chapter 1 contributes to the recent debate about the importance of temporary price changes for monetary policy transmission. Although sales occur very frequently, macroeconomists often filter them out because sales are not responsive to economic shocks. Using micro data underlying CPI, I demonstrate that after sales, the price index of durables goes down gradually, and that the aggregation of sales of durable goods have a significant impact on the aggregate inflation. However, sales of nondurables--the focus of previous studies--do not show these results. To study the impact of sales, I then propose a two-sector menu-cost model with the feature of sales. The model is able to match the pattern of sales and moments in the micro data. By contrast, failing to account for temporary sales in a menu-cost model would increase the output effect by 73%, and the Calvo model calibrated to the frequency of regular price changes triples the output effect. Chapter 2 examines the impact of unconventional monetary policies on the stock market when the short-term nominal interest rate is stuck at the zero lower bound. Unconventional monetary policies appear to have significant effects on stock prices and the effects differ across stocks. In agreement with existing credit channel theories, I find that firms subject to financial constraints react more strongly to unconventional monetary policy shocks (especially large-scale asset purchases) than do less constrained firms. My results imply that the credit channel is as important as the interest rate channel in the transmission of unconventional monetary policies at the zero lower bound. Chapter 3 investigates the time-varying effects of monetary policy shocks on financial markets. I show that the corporate bond market is highly responsive to monetary policy shocks throughout 2000-2012, implying a high pass-through of policy-induced movements in Treasury yields to private yields even during the zero lower bound period. While the long-term Treasury bond market is highly sensitive to monetary policy shocks throughout almost the entire sample, the short-term Treasury bond market is severely constrained by the zero lower bound. The stock market is less responsive from 2008 to 2010, but the responsiveness bounces back rapidly in 2011.
Three Essays in Monetary and Financial Economics
Author: Liang MaPublisher:
ISBN:
Category : Economics
Languages : en
Pages : 0
Book Description
This dissertation consists of three essays in the field of monetary and financial economics. Specifically, we use high-frequency financial data to study monetary policies with a focus on the information effect, namely, that some of the interest rate movements around central bank announcements are not policy-driven, but are results of the market becoming aware of the central bank's view about future economic prospects. Understanding the role played by the information effect will help us apprehend monetary policy implications in both normal times and extraordinary situations. Chapter 1 evaluates the impact of unconventional monetary policy in the newly developed instrumental variable structural Vector Autoregression (VAR) framework. In the current low interest rate environment, central banks must resort to using unconventional monetary policies, such as forward guidance and quantitative easing, to flight recessions. To empirically evaluate the effectiveness of these unconventional policies, we need to rely on the clean policy shock. A prominent concern is that the often used high-frequency interest rate surprises not only reflect unexpected policy changes, but also contain the information effect. We contribute to the literature by using a heteroskedasticity identification approach, taking advantage of changes in the relative dominance of economic shocks around different macroeconomic announcements. Analysis based on clean policy shocks suggests that the unconventional policies successfully aided the recovery in the U.S. More importantly, we show that the information effect, while it may introduce bias, is rather modest when it comes to estimating the real impact of unconventional monetary policies. Chapter 2 studies the stock return pattern after the U.S. Federal Open Market Committee (FOMC) announcement. This research is motivated by recent literature that documents stock returns drifts, both before and after FOMC announcements, according to policy rate surprises. Indeed, research has shown that the information contained in the central bank announcement is multifaceted: its current monetary policy stances (monetary policy news) and news about future economic prospects (non-monetary policy news). Our contribution is to combine these two strands of literature. To the best of our knowledge, no study has looked at stock market reactions to the non-monetary news stemming from policy announcements. We identify both good and bad news events using a combination of sign restriction with high-frequency financial prices. The novel finding is that following bad FOMC announcements, that is the market interpreted the Fed announcements as revealing negative information about the economy, we observe significant positive stock returns in a 20-day period. We call this the ``post-FOMC drift.'' Further analysis suggests that the drift is likely caused by relatively heightened risks associated with bad announcements, although the drift is consistent with market overreactions as well. Moreover, the post FOMC drift is a market-wide phenomenon and can be exploited in an easy-to-implement trading strategy with a historical record of earning 40\% of the annual equity premium. In Chapter 3, we explore the channels through which the FOMC announcements affect the financial market. While much of the existing literature measures the surprise components with only changes in policy rates (surrounding the announcement), we contribute to the existing literature by taking a broader view through examining unexpected changes in longer-term yields, corporate credit spreads, and inflation expectations (a proxy for growth prospects), using high-frequency financial data. Through a regression analysis, our findings show that these additional surprises provide orthogonal information and sharply increase the goodness of fit in explaining stock returns around FOMC announcements, with the inclusion of inflation expectations having the biggest contribution. The important role of inflation expectation suggests that the current literature, which uses stock prices together with nominal rates to disentangle the information contents of central bank announcements, may be too limited in the scope of information it uses.